OFG Bancorp

Good morning. Thank you for joining OFG Bank Corp's conference call. My name is Melinda. I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Vice Chair of the Board of Directors, and Maritza Arismendi, Chief Financial Officer. A presentation accompanies today's remarks. It can be found on our Investor Relations website on the home page in the What's New box or on the quarterly results page. This call may feature certain forward-looking statements about management's goals, plans, and expectations. These statements are subject to risks and uncertainties outlined in the risk factors section of OFG's SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez.

Good morning, and thank you for joining us. We are pleased to report our first quarter 2023 results. All our businesses performed well and contributed to another strong quarterly performance by OFG. The quarter's results also reflect the strength of our franchise, supported by high levels of liquidity and capital. This places OFG in a strong position in today's banking environment. Now let's turn to page three of our conference call presentation. Core revenues, net interest margin, credit quality, operating leverage, and customer acquisition trends all remain at high levels or improved compared to the fourth quarter. Deposit balances were stable with only a 10% cumulative beta. We continue to execute our digital first strategy, placing more banking kiosks and interactive teller machines in the field. Client digital adoption increased 10% year over year. Our key performance metrics also continued at strong levels. Businesses and consumers are in good financial shape in Puerto Rico, and the economy continues to do well. We look forward to ongoing progress in 2023. Thanks to our teams for their excellent execution, commitment, and drive, helping customers and the communities we serve achieve their financial goals. Looking at the income statement, earnings per share diluted was 96 cents, up 26% year-over-year. Core revenues total $164 million, up 21%. Net interest margin was 5.89%, up 142 basis points. Provision was $9.4 million, Non-interest expenses were $90.2 million, and pre-provision net revenues totaled $74.6 million, up 34%. When we look at our balance sheet, customer deposits were $8.6 billion, up slightly compared to the fourth quarter. Loans held for investment totaled $6.9 billion, also up slightly over the fourth quarter. New loan production remained strong at $561 million. Investments totaled $1.9 billion, down slightly from the fourth quarter due to the maturities of treasuries and the normal pay down of mortgage-backed securities. Cash was $847 million, almost $300 million higher than the fourth quarter. We continued to build capital. The CET-1 ratio was 14.07% compared to 13.64% in the fourth quarter. All in all, excellent quarter, very strong performance. Now, here is Maritza to go over the financials in more detail.

Thank you, Jose. Please turn to page four to review our financial highlights. Let me start with total coins revenues. Net interest income of $136 million held steady compared to the fourth quarter. This primarily reflected the full effect of Fed's fourth quarter 2022 rate increase of 50 basis points, but only a partial effect of the 50 basis point increase in the first quarter of 2023. Also, higher yields on higher average balances of loans, in particular auto, commercial, and consumer. And we did have two fewer days during the quarter compared to the fourth quarter, which reduced net interest income by $2.2 million. Banking and wealth management revenues were $29 million compared to $33 million in the fourth quarter. This primary reflected reductions of $2 million in mortgage servicing rights valuation, $1 million in wealth management revenues, from the annual recognition of insurance fees in the December quarter, and a half million dollars from the sale of the retirement plan administration business that we announced at the end of last year. Looking at the efficiency ratio, it was 54.87% in the first quarter. That's a minor change from the first quarter and significantly better compared to a year ago. This reflected our increased positive operating leverage in line with trends we have seen over the last year. Non-interest expenses totaled $90 million compared to $92 million in the fourth quarter. That primarily reflected lower general and administrative costs. In part, that was due to a half million dollars of lower costs as a result of the sale of our pension administration business. Non-interest expenses should continue to average about $90 to $92 million per quarter in 2023. Our efficiency ratio target should also continue in the mid-50% range. Looking at our performance metrics, return on average asset was 1.87%, and return on average tangible common equity was 19.13%. Looking at tangible book value per share, That was $20.57. That's an increase of about $1 compared to the fourth quarter. This reflected increased retained earnings and lower other comprehensive loss. Please turn to page five to review our operational highlights. Looking at average loan balances, they increased $96 million from the fourth quarter. End of period loans increased to $6.85 billion. That is a 1.1% annualized increase from the previous quarter and a 4.7% increase year over year. Sequential growth reflected increased balances of auto and consumer loans. This was partially offset by paid downs of residential mortgages and commercial lines of credit. Looking at loan yield, it was 7.58%. That's 26 basis point increase from the fourth quarter. That's due to Fed rate increases combined with a higher proportion of auto consumer and commercial loans versus residential mortgages. Looking at newer loan originations. This reflected continued high levels of auto lending and increased commercial lending in the US. Puerto Rico commercial lending was lower compared to the fourth quarter, however, our commercial pipeline remains strong. Looking at core deposits. Compared to the fourth quarter, average balance decreased, but end of period deposits increased. Over the course of the quarter, we saw a shift from demand deposits to savings accounts, time deposits, and to a lesser degree, to our wealth management business. During the quarter, government deposits went down from $295.4 million to $231.4 million. We also saw a marginal decline in retail deposits of 0.3%, and a noticeable increase in commercial deposits of 2.3%. Looking at core deposits, that was 53 basis points, an increase of 14 basis points from the quarter I was. So far, our cumulative deposit data has been about 10%. We expect cumulative data Deposit data of about 25% well below expected mainland levels through this cycle. Butterwinds increased. That reflected a $200 million two-year advance from the Federal Home Loan Bank. Looking at net interest margin, that was 5.89%, an increase of 20 basis points from last quarter, and 142 basis points year-over-year. Our need outlook generally remains the same. Our tax rate for the first quarter was 29%. For the year, we're anticipating an effective tax rate of 32%. Please turn to page five, six to review our credit quality and capital strength. Looking at net charge-offs, they total $10 million compared to $11 million in the fourth quarter. That reflected a significant reduction in auto loan net charge-offs. In addition, delinquency and non-performing loan trade fell across the board. Looking at provision for credit losses, that totaled $9.4 million, reflecting $6.2 million due to increased loan volume, $2.1 million from a commercial loan held for sale, and a $1.1 million increase adjustment due to increased increasing recessionary risk in the United States. Looking at non-performing loans, the total NPL rate was 1.32%. That's what down 29 basis points from the fourth quarter and 34 basis points from a year ago. Overall, trade improved noticeably from the fourth quarter. Looking at some of our other capital metrics, total stockholders' equity was $1.1 billion. That's up $47 million from the fourth quarter. And TCE ratio increased to 9.85%. Now here is Jose.